December 11, 1975
Page 39962
FINANCIAL INSTITUTIONS ACT OF 1975
The Senate continued with the consideration of the bill (S. 1267) to expand competition, provide improved consumer services, strengthen the ability of financial institutions to adjust to changing economic conditions, and improve the flow of funds for mortgage credit.
Mr. MUSKIE. Mr. President, I hesitate to rise in connection with the pending measure, but I have no choice, because some implications of this bill came to my attention shortly before noon that I think should be brought to the attention of the Senate.
As chairman of the Budget Committee, I am concerned about the relationship of the proposed legislation, which we are about to pass, with the proposed new home mortgage tax credit to which it was connected. I have discussed this with the distinguished floor manager of the bill, Senator McINTYRE and with Senator PROXMIRE; and I believe that as a result of the points I raise, some legislative history will be made which will be helpful.
As reported by the Banking Committee, title 7 of the Financial Institutions Act contained the new tax credit. Pursuant to an amendment offered by Senator McINTYRE, this title was dropped from the bill before the Senate and referred to the Committee on Finance, which has yet to formally consider these provisions.
Mr. President, one of the frustrations of the Budget Committee is that often, as in this case, legislation which has budgetary implications comes up on our blind side. In this case, it originated in the Banking Committee, which properly gave consideration to the subject; but it does not come to our attention as early as it should. I urge chairmen of standing committees to take advantage of the March 15 report each year to bring to the attention of the Budget Committee as many of these potential budget impacting pieces of legislation as possible, so that we will be alerted early on.
With respect to the merits of the tax credit to which I have just referred, the Budget Committee is not in a position to commit the Senate on the merits of that tax credit today. Yet, we must keep its very substantial costs clearly in mind while we consider the new regulatory structure of the financial institutions in the legislation now before us, because, as I understand it, the regulatory provisions are related to subsequent enactment of the related tax legislation.
I would appreciate having the comments of Senator PROXMIRE and Senator MCINTYRE on that point.
The mortgage interest tax credit is intended to replace the current tax law provisions which permit financial institutions deductions for bad debts substantially in excess of their actual bad debt experience.
Under the Tax Reform Act of 1969, the existing bad debt reserve provisions will be phased out completely for commercial banks by 1988 and will be reduced substantially for mutual savings banks and savings and loan associations by 1979.
The net revenue cost of new mortgage tax credit in excess of the current cost of the liberal bad debt reserve provisions is estimated to be between $500 million and $900 million for each of the next 5 years, for a total cost of slightly more than $3.5 billion.
The bad debt reserve provisions now reduce Treasury revenues by approximately $1 billion annually. Thus, the cost of the new credit, apart from the offsetting elimination of the bad debt reserve provisions would be about $1.5 billion in 1976 alone and comparable amounts in subsequent years. Since the bad debt reserve provisions are being substantially phased out under current law, in future years the net cost of the new credit would come much closer to the current gross cost of $1.5 billion than it would in its initial years of operation.
These are extremely substantial sums of money the Federal Government will be foregoing indefinitely if the combined new regulatory rules and tax credit are ultimately enacted. These sums are justified by proponents of the legislation as necessary to insure that adequate funds flow into residential mortgage lending activities.
The Budget Committee will be striving hard to reduce future budget deficits to a minimum. Therefore, the case for enactment of this new credit must be compelling since its adoption will make it that much more difficult to balance the budget or to permit general tax cuts in the future.
Careful consideration must be given to whether the proposed mortgage interest credit is necessary as well as whether it is the most efficient means of assuring adequate home mortgage funds compared with other possible non-tax forms of governmental assistance.
I will vote in favor of the bill before the Senate today because it is a step toward making capital market more competitive and is likely to have an expansionary impact on economic activity.
However, I will not vote in favor of the costly home mortgage tax credit, unless I become convinced of both its effectiveness and the need for a credit of such great magnitude.
These, Mr. President, are my understandings, based upon my staff's analysis of the potential costs of the new home mortgage tax credit which is covered by title 7 of the act. Title VII has been dropped. It is going to the Committee on Finance for consideration and will, in the course of that consideration also be evaluated by the Budget Committee. But I am concerned at the moment with the extent to which the outcome of the remaining six titles which are now before generate momentum behind the former title VII and thus, to some extent, limit our options in the future.
I should like the reaction of the distinguished chairman of the Committee on Banking, Housing and Urban Affairs and the floor manager of the bill, because I think that information would be useful to me and to the Budget Committee, as well as to Senators as a whole.
The ACTING PRESIDENT pro tempore. The Chair inquires as to which side is yielding time to the distinguished Senator from Maine.
Mr. McINTYRE. I am happy to yield as much time as he may need, on the bill.
Mr. MUSKIE. I yield to the Senator from New Hampshire.
Mr. DOMENICI. Mr. President, will theSenator yield for a unanimous consent request?
Mr. McINTYRE. I yield.
Mr. DOMENICI. Mr. President, I ask unanimous consent that Caroleen Silver,of my staff, have the privilege of the floor for the remainder of this bill and for S. 988.
The ACTING PRESIDENT pro tempore. Without objection, it is so ordered.
Mr. McINTYRE. I yield myself 3 minutes on the bill.
Mr. President, in answer to one of the questions raised by the distinguished Senator from Maine, there is no doubt that title VII is interrelated to the six titles that we are about to pass today.
The Senator from Maine has said that this comes up on his blind side. We feel the same way. His appearance here at this moment is coming up on our blind side, too. If we are going to have these difficult questions asked of us, we should have time to prepare.
It is true, as the Senator from Maine has said, that title VII would increase the budget deficit; but title VII cannot, as the distinguished Senator from Maine knows, be considered in a vacuum. Because of the phaseout of the special bad debt loss provisions now in progress as a result of the 1969 tax bill, housing will be significantly and adversely impacted – unless this increasing disincentive to investment in housing, as compared to historic standards, is replaced by new incentives.
The new incentives are contained in this bill, S. 1267, including title VII. All of it is designed to do that, create new incentives.
Now, if S. 1267 is defeated, it will be necessary, Mr. President, to increase direct budget outlays for housing if we are to meet the Nation's housing goals as set forth in 1968. So if we try to prevent the loss that the Senator sees occurring to the Treasury as a result of this title VII, if he is going to push it down, then he is going to find that over in the appropriations side, it is going to pop up. If he pushes it down here, it is going to come up there.
In short, the deficit is likely to be higher, not lower, without this bill when we consider the appropriations that will be required to live up to the 1968 HousingAct. But even if there were budgetary costs from title VII, the benefits that will accrue from the first six titles and the need to replace the special loan loss provisions make it imperative, Mr. President, for the Senate to vote for S. 1267.
To implement my answers, I yield now5 minutes to the chairman of the Committee on Banking.
Mr. PROXMIRE. I say to my good friend from Maine that I concur in what the Senator from New Hampshire has said. It is very, very hard to tell what effect this is going to have on the deficits or on the budget. If the tax incentive works as it should work, it will mean that there will be more housing, more wages paid, more profits, more revenue on those wages and profits. Therefore, revenues would increase, and the deficit would tend to be reduced. Of course, that is all theoretical; we do not know.
We have the word from the Department of the Treasury that the cost of title VII would be, in 1976, $544 million; in 1977, $618 million; in 1978, $699 million; 1979, $790 million; 1980, $172 million. That ignores the benefits which we expect to achieve and we would not enact it if we did not expect to achieve them.
Mr. MUSKIE. It is also accurate, is it not, that as the current law phases out, the budget benefit that is achieved by that phaseout will essentially offset some of the costs the Senator from Wisconsin has just described?
Mr. PROXMIRE. The costs I have described, I believe, would recognize the bad debt reserves and that loss would no longer be a factor.
Mr. MUSKIE. So the figures the Senator has given are net figures.
Mr. PROXMIRE. They are net in that sense. They do not recognize economic impact and the effects that may have.
The Senator has made it very clear in his statement, and was very fair in pointing out that titles I to VI, if they are passed, would not cost anything. That is all we are acting on today because of the McIntyre amendment.
Title VII will be something the Senate can accept or reject. I am very hopeful, on the basis of what I have seen so far, that they will accept it. I say that as one who has opposed tax expenditures generally, opposed tax credits, and recognized that we are far too cavalier in adopting them. We should be careful in considering title VII, if it comes up, if it does pass the House and/or does not come out of the Finance Committee, that in no sense is the Senate bound, by having acted on this bill, to enact a tax credit. We shall have to consider that de novo when it does arise, recognizing that it might provide real benefits for housing.
Mr. MUSKIE. I appreciate that statement. There are important provisions in the six titles in which I am interested, as well as other Senators. I did not want to put myself in a position, by voting for them, of in any way committing myself to this additional cost.
I commend the Senator for his continuing interest in stimulating the housing industry. I think that is an interest that is shared by, probably, every Member of the Senate. When we have had a chance to look at the merits of title VII, with the inputs of the Committee on Finance, it may well be that we will all support them. I simply regard it as the duty of the Committee on the Budget to alert the Senate to these costs.
Let me address myself again to that point which Senator McINTYRE addressed with some frustration. We do not, in the Committee on the Budget, have a tracking system which enables us to get on top of every piece of legislation that is pending in any committee that might have budgetary implications. It may be that we shall develop mutual habits with other committees that, in due course, will assure us that we will not be taken by surprise and that we will not take legislative committees by surprise.
Mr. PROXMIRE. If the Senator will yield on that point, the Senator makes an excellent point. I have just directed the staff director of the Committee on Banking in the future to notify the Committee on the Budget whenever we have legislation that has budgetary implications — either additional expenditures or reduced expenditures, or additional or reduced revenues. I think that is our obligation, and we shall do it in the future. We neglected to do it this time, when we should have done so.
Mr. MUSKIE. That is very considerateof the Senator. I should say that I do not really relish coming to the floor at the last moment and springing questions like this. I think the budget process works better to the extent that we can alert other committees of what we have. That has been our objective. I raised these questions this morning not to put any roadblock in front of this legislation, but simply to raise the questions and to make a record that Senators may consider when title VII comes back to us in some form.
I thank my good friend from New Hampshire and my good friend from Wisconsin for helping me put this record together.
Mr. McINTYRE. I thank the distinguished Senator from Maine for his observations and for his careful attention to his duties as chairman of the Committee on the Budget.
I am prepared to yield back my time.
Mr. TOWER. I yield back my time.
Mr. McINTYRE. Mr. President, we yield back our time.
The PRESIDING OFFICER. All time has been yielded back. The question is, Shall the bill pass?
The yeas and nays have been ordered. The clerk will call the roll.